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DAN ABRAMS, HOST: Continuing with our breaking news coverage tonight: NBC News confirming that there has been a security breach at the State Department. Senator Barack Obama’s passport records have been improperly accessed by State Department employees.

A State Department official is telling NBC News tonight that Obama’s records were accessed by three people on three different occasions earlier this year. January 9th, February 21st, and March the 14th. Two contract employees have been terminated. A third individual disciplined.

A State Department official is explaining to NBC News how this would have been discovered, quote, “A monitoring system was tripped when an employee accessed the records of a high profile individual, when the monitoring system is tripped, we immediately seek an explanation for the records access, if the explanation is not satisfactory, the supervisor is notified.”

But this certainly leads to more questions than answers. Who knew? When did they find out? How high did it go? And why was Senator Obama just informed about this tonight?

Now, the “Washington Times” is reporting today, just in the last hour, that Secretary of State Condoleezza Rice was notified of the security breach yesterday and responded by saying security measures use to monitor records of high-profile Americans worked properly in detecting the breaches.

Of course, the question remains: Why did the Obama team, why did Senator Obama just find out about this now?

We’re going to be speaking to a member of Senator Obama’s team in a moment but first, David Shuster is with us. All right, David. Again, this is breaking throughout this night, what do we know about how Senator Obama found out about this?

DAVID SHUSTER, MSNBC CORRESPONDENT: Dan, we’re told that Senator Obama’s staff, his Senate staff simply got a phone call from a lower level State Department official and there was sort of a cursory notice. And so, that raises of course, the big issue, Secretary of State Rice knew about this yesterday, why isn’t that a higher level State Department official actually contacted Senator Obama himself? That’s one issue of course, the notification.

But, Dan, the other big issue on all this tonight, which of course, the Obama campaign is continuing to ask, is never mind how they were notified, they like a lot of reporters tonight, want to know, OK, how is the decision made at the State Department? How is the determination made that this was not worthy of an investigation by the FBI over at that Justice Department?

Because the standard procedure is, once this happens, an inspector general of the State Department is notified and the inspector general has to do interviews with these contractors and find out was this innocent? Were they just fishing around? And then secondly, what did they do with the information because if they disseminated the information, that automatically makes it a violation of the Privacy Act punishable under criminal laws. So -

ABRAMS: That becomes the crucial point legally if the dissemination of the information. Because up to this point, it may just be viewed as procedural, they may say, look, we fired the person, the people, that’s it. But if they disseminated the information, then, you’re talking about potential criminal penalties.

Eric Holder joins us now on the phone as well. He is one of the co-chairs of the Obama campaign. Thanks very much for taking time, we appreciate it. Can you tell us a little bit more about how Senator Obama found out about this?

ERIC HOLDER, CO-CHAIR OF THE OBAMA CAMPAIGN (on the phone): I honestly can’t. All I know is basically kind of what you are reporting that we got a call this evening to inform us about this pattern of conduct that I think is very disturbing.

ABRAMS: Do you know when the senator found out about it? When the senator learned of it?

HOLDER: No, I don’t. And I have to tell you that from our perspective, the notification of the senator and who got notified and when is disturbing. But it’s even more disturbing to look at what actually underlying facts. That’s what I think we need to be focusing on.

ABRAMS: Well, look, you’ve worked at a variety of levels of the federal legal system in the United States, in terms of the law here, what do you think should happen?

HOLDER: Well, I’d want to know exactly what did the State Departments investigation and I hope they’d do an investigation, what did that investigation revealed? I’d want to know exactly why you have three separate incidents, separated by a month or so. Why didn’t that trip some heighten sensitivity and how could, you have for it, then have another one, then have yet a third one and as I understand it, not having been referred to the Justice Department for further investigation.

You know, if it happened once and you might be able to say that it was somebody just kind of snooping around. When you get to a second time, I’m less certain that’s all that we have. Then, when we get to a third time, there I really begin to wonder what’s going on here.

ABRAMS: A senior State Department official telling NBC News tonight, that there was, quote, “no political motivation.” He says that here were low level contract employees doing administrative work and they accessed the Obama records out of curiosity. That official also didn’t believe any of the information was sent anywhere. But I would assume that those assurances are not the end of the issue as far as you are concern.

HOLDER: No, I wouldn’t think so at all. I mean, again, I want to know exactly what did—how was that determination made? How could there be such administrative bungling that would allow these kinds of incidents to happen on repeated basis?

It was serious enough that two people were fired and another one disciplined whatever that means. I want to know exactly, you know, you have potential criminal violation here if this information was disseminated in something that was wholly inappropriate if it just happened.

And I think we have to understand that this is a very serious thing. When it happened in the early 90s which regard to President Clinton, well, then ex-Governor Clinton’s passport, an independent counsel was actually appointed to look into that, Joe DiGenova, a great lawyer here in Washington, D.C., you know, an independent investigation occurred.

ABRAMS: Yes, there they wanted to - what the individuals are apparently been looking to see if Bill Clinton, back in the 60s had made some sort of effort to dodge the draft.

HOLDER: Right. As I remember, wherever he go on to Moscow or something along those lines. You know, whatever the nature of the inappropriate search, the fact that people are accessing these materials in an inappropriate way is something that has to be taken seriously and has to be examined in a very serious ways.

ABRAMS: Let me—the “Washington Times” reporting that Secretary of State Rice was notified of the security breach yesterday. Does that concern you?

HOLDER: Yes. Given who’s files were examined, the leading candidate for the Democratic nomination, given the fact that we have three separate incidents, given the fact that two people were fired at least a month or so ago, the fact that the Secretary of State has only been informed in the last day, suggests to me that somebody at the State Department is not doing their job right.

ABRAMS: All right. Mr. Holder, I want to tell you that the State Department’s spokesman Sean McCormack is holding a press briefing as we speak, a conference call. And here’s what he has said at the beginning on this call. He has said this was imprudent curiosity on the part of the three individuals, quote: “We are taking immediate steps to be able to ensure ourselves that it is in fact nothing more than imprudent curiosity.”

It sounds like what they’re saying is they’re going to do their own investigation.

HOLDER: Well, I think that’s the appropriate thing. The inspector general should be the one conducting in the first instance, the investigation. What I’d always looking towards if there is some basis to believe that a criminal violation has occurred. Then you immediately refer it to the Justice Department and you get the FBI involved.

ABRAMS: Explain to us the role of the inspector general.

HOLDER: Well, the inspector general is somebody who is a politically appointee but who operates really outside the normal chain, outside the political chain and has a responsibility for investigating administrative violations that have occurred (ph), if they’re violations of State Department regulations, as soon as an IG, an inspector general makes the determination if there’s a possibility that a criminal violation that then has to be referred to the Justice Department.

ABRAMS: A passport application includes details such as date, place of birth, email address, mailing address, Social Security number, former name, travel plans, et cetera, should there be concern that, again, they’d described them as low level contract employees doing administrative work. Should there be concern that low level contract employees doing administrative can access the records of a presidential candidate?

HOLDER: I think that’s a very legitimate question. When you have these kinds of records being examined by people who they’d described as low level and, you know, presumably not political, I think, you have to worried about systems they have in place and what safeguards they have in place to make sure that these kinds of records are not used in an inappropriate way.

And again, I don’t want to sound like a broken record, but the fact that you have three separate, inappropriate lookings at these materials is very disturbing to me. And I say, again, to suggest in some way in very unbelievable coincidence or perhaps a pattern of some sort.

ABRAMS: Yes, you mentioned a moment ago, Joe DiGenova. And he joins us now, on the phone, the former U.S. attorney and independent council who investigated the incident that Mr. Holder was referring to with regard to Bill Clinton.

Thanks for taking the time, we appreciate it.

JOE DIGENOVA, FMR. U.S. ATTORNEY (on the phone): My pleasure.

ABRAMS: So, you know the facts that we know at this point. That it appears that three individuals from the State Department, contract employees improperly accessed the passport application data. The passport records of Barack Obama. What happens now, legally?

DIGENOVA: Well, as Eric said earlier and hello to my very good friend, Eric Holder, the bottom line is there should be an investigation conducted by the inspector general. In fact, there may have been one already. If this was discovered in January, as I understand it, I cannot imagine that there has not already been an investigation by the inspector general, if there hasn’t been, I would want to know why not.

ABRAMS: They’d just told us actually, Joe, that they’d just said on their conference call, the inspector general will do that.

DIGENOVA: But I want to know why he hasn’t done it already? If these people—I understand the breach occurred in January and was discovered in January, is that not correct?

DIGENOVA: Well, I’d like to know what happened in the last several months. By the way, even just looking at the files is a violation of the Privacy Act. They don’t have to be disseminated. If someone looks at a file without the authority and purpose need to know to do, that is an invasion of privacy at that point.

You have to have a legitimate purpose for accessing these files. If they did it out of prurient (ph) interest, that, of itself is potentially a criminal violation. If there was dissemination, that would make it worse. Now, of course, the Privacy Act is only a misdemeanor but certainly, a firing offense. If these people have been fired by the way, they can’t be interviewed by the I.G. anymore.

ABRAMS: Explain that to us because -

DIGENOVA: They’re not government employees anymore. The I.G. doesn’t have authority over them.

ABRAMS: Because two of the State Department employees have apparently been fired, a third disciplined.

DIGENOVA: Well, if they have been fired, the I.G. can ask if they want to talk to him all he wants to but he doesn’t have the legal authority to them. Presumably, these people were interviewed before they were fired. I cannot imagine that they would not had been interviewed and given statements. If they weren’t, that would be monumental incompetence.

ABRAMS: I’m now getting some more information from Sean McCormack, the spokesperson for the State Department, trying to provide more information about exactly what happened and how it happened in this really somewhat stunning development from the State Department with regard to individuals there, improperly accessing the passport records of Senator Barack Obama.

McCormack saying, it was three separate employees in different locations. Each case, they say, they immediately contacted the employer who disciplined them, they were immediately fired, those with regard to two and the third case, the employee was disciplined but remains with the contractor.

No reason to believe they did anything to the files. They say they are investigating. They say they briefed Senator Obama’s office on this issue this afternoon. That’s when senior management at the State Department first became aware.

We’re looking at the issue if there’s anything more as to why they did other than inappropriate curiosity, they’ll be asking the inspector general of the State Department who’ll conduct a review.

But the problem, Joe DiGenova, with that is—the senior manager of the State Department is just becoming aware of this, this afternoon?

DIGENOVA: I find that incomprehensible. I cannot imagine that someone—if this has been maintained at the lower levels of the department, the people at the lower levels of the department who kept it down there, need to be disciplined. This is incomprehensible to me in the modern era.

ABRAMS: Is Andrea Mitchell with us? Because—Andrea, are you with us? She’s not ready yet. If she gets ready because the issue that I think is very important here is the timing, as Joe DiGenova has just laid it out.

DIGENOVA: Mind boggling.

ABRAMS: Yes. I mean, the question of: What did they know and when did they know it? I mean, we ask this in just about every investigation and big case but here it is absolutely crucial to know. We’re talking about breaches in January the 9th, February 21st, and March the 14th. And now, only moments ago, the spokesperson for the State Department is saying there that the senior management of the State Department first became aware of it, it would appear from these notes, this afternoon.

Now, the “Washington Times” reporting that Secretary of State Condoleezza Rice was notified of the breach yesterday, but regardless, yesterday, this afternoon, we’re talking about these trips. And again, Joe, there are these specific monitoring systems that are in place, specifically to prevent something like this from happening and to notify officials if someone like a low level contractor is snooping in someone like Barack Obama’s files.

DIGENOVA: Yes, after my investigation back in the 90s, the Department of State instituted technical monitoring systems so that they could detect when someone was improperly accessing files. And apparently, that system worked in terms of detecting the initial violations.

What apparently didn’t happen was after that, there was no chain of command, communication to higher authority and whether they were protecting themselves, that is the middle managers who are protecting themselves and didn’t push the information up. It will have to be investigated.

ABRAMS: Well, what if that is true, Joe? I mean, could they face any criminal penalties? Let’s say for a moment that some middle level manager was informed that one of his or her employees had accessed the files of Barack Obama. And that person said, you know what, this would look really bad for us and didn’t do anything. Is that a possible criminal violation?

DIGENOVA: Probably not. In all likelihood, a person at that low level would have been a civil servant, not a political appointee in some regional office. And the likelihood of that being converted into a criminal violation when it’s a misdemeanor would be almost, I can’t conceive of that. However, administrate sanctions of failing to report the matter in a timely fashion to higher authority might very well be appropriate.

ABRAMS: Andrea Mitchell joins us now on the phone. Andrea, tell us, you’re joining us on the phone now. We thought we’re going to have you in person.

MITCHELL: The reason I have the telephone is I’m listening to this conference call from the State Department so, I want to make sure that I don’t miss anything.

But what I’m telling you right now is that Sean McCormack and Patrick Kennedy from the State Department are saying that they are assured from their preliminary investigations that this was just imprudent curiosity. What they’ve not explained is the very question that Joe DiGenova was just asking.

First of all, those who were fired, that those (ph) who were fired no longer come under the inspector general’s management. So, how they know very much more than that and whether or not there is other independent investigation or FBI investigation, even preliminary into this.

ABRAMS: Have they explained, Andrea, why they are only calling for the inspector general now to investigate?

MITCHELL: They have not explained that nor what the lag of time was. Two of the employees who were fired worked for the same company. And there is a second company involved which is the third person who was disciplined.

So, they’ve not explain any of these inconsistencies nor why it took so long for Secretary Rice to be aware of it nor for somebody to notify Senator Obama. What they have said is that Patrick Kennedy who does have ambassadorial rank will be going to Senator Obama’s office tomorrow. So that they are going to actually go to the office belatedly as it is and visit with people in the Washington, in the Senate office to explain what happened.

ABRAMS: All right. Andrea, throughout this conversation, if you can please interrupt us at anytime with anything that they are saying that you think is particularly relevant. In the meantime, you can stay with us as we continue this conversation.

But Joe DiGenova, part of the issue here is perception. Part of the issue here is the fact that you’re talking about a presidential candidate and the notion that low level State Department contract employees can access the information of Barack Obama. It does lead, I think, myself and many in the public to think, my goodness, if they can access Barack Obama’s passport information with no real problem, then, they can access anyone.

DIGENOVA: They certainly can. And welcome to the world of big government. When a government gets as large as the United States government is and has as many functions which the American people want it to have, it requires there’s to be an inordinately large number of people who have access to very private information and this is inevitable.

ABRAMS: But when your investigation was ongoing with regard to the alleged breach with regard to Bill Clinton’s information, what was the key element of the investigation? What were you real really looking for?

DIGENOVA: Who did it? It’s a little different. You see, when I conducted my investigation, there was no monitoring system. We had to begin from scratch to find out things.

And the State Department was relatively incompetent at even gathering information and documents and fundamental—even telephone information from the bowls (ph) of the State Department, it was hard to get.

That doesn’t exist anymore. Now, there’s a monitoring system. And apparently, these people were discovered almost immediately.

ABRAMS: And we’re just learning again, from this conference call of the State Department is having as we speak about this, David Shuster, reporting at that inspector general didn’t learn about this until today.

DIGENOVA: Remarkable. Absolutely, that is a stunning revelation and I think, it really shows a complete management failure at the midlevel management of the department which would be the civil servant level, by the way, not political. That means that the civil servants circled the wagons to protect themselves.

ABRAMS: Is Eric Holder still with us?

HOLDER: I am.

ABRAMS: Yes, OK. I say it again, co-chair of the Obama campaign, Eric Holder, is on the phone with us as well. You’re just learning this, as are we that the inspector general, the person we’ve been talking about who would lead this first level of investigation didn’t learn about this.

And we’re talking about breaches that occurred in January, February and March—January 9th, February 21st, and March the 14th, that the inspector general did not learn about this until today. Both, in your role as the Obama co-chair and as your role as a former federal prosecutor, what do you think of that?

HOLDER: That to me is mind boggling. The fact that the inspector general, the person charged with the responsibility of monitoring these kinds of things did not find out this until today or yesterday, whenever, is, for me, an indication, I think as Joe said, of a major administrative failure or some kind of willful behavior on the part of people who knew about this and made the decision not to report this up to chain.

ABRAMS: Let me give you another piece of information from the conference call. Sean McCormack, the State Department’s spokesperson admitting that “they’ve failed.” Quote, unquote. He admits they failed.

“All of these involved employees of contractors, rather than U.S. government employees. I will fully acknowledge that this information should have been passed up the line. It was dealt with by the office level,” this is exactly what Joe DiGenova said a moment ago, “by the office level supervisors who took immediate steps, but I will admit they failed,” these are notes (ph), “but basically they failed to get the information up the chain to a sufficiently high level.”

Now, this is important because now we’re learning that they are confirming that people knew that a presidential candidate’s passport information had been improperly accessed and they probably knew, it would seem, for months. And yet, it never made its way up the “food chain,” so to speak by the office level supervisors.

I mean, this to me, is almost stunning information, Joe DiGenova.

DIGENOVA: Well, you know, if you’ve ever been in government, Dan, on a daily basis, things of monumental incompetence happened when you have a government this size. And you usually, when people start looking for, you know, bad things, they think that everything is evil. Most government mistakes are basically incompetence.

But this failure to report up, it would be one thing if there were one incident but there were two incidents, one in January, one in February, and then, in mid-March. It seems to me that the failure of two of those incidents to be reported upward that long probably means that there was a conscious effort to suppress the information.

You know, it’d be one thing for one thing to fail to get to move northward in a bureaucracy, but when two don’t, that means that lower or middle level managers decided that their careers would be harmed if it went higher up and they stopped it. But that’s a failure of management at all levels though, and means people aren’t asking questions.

ABRAMS: Eric Holder, any information about Barack Obama. I’m sure that there’s nothing in there that is particularly, I mean, is sensitive, it’s all sensitive information. But is there anything in particular that Barack Obama would be particularly furious about?

HOLDER: No, I don’t think so. But I think he would have the same level of anger as any American citizen would have knowing that, you know, very private records are in a government file have somehow been accessed because somebody decided they just wanted to look at them and be concerned about what was done with that information once it was obtained inappropriately by these people who worked for the State Department, these contractors.

DIGENOVA: Yes, and what’s really disturbing, Dan, is that these records aren’t out in electronic form. This is not just a file jacket, you know, located in some green file cabinet, you know, in some regional office, in a warehouse that’s not air-conditioned.

These are electronic files now. They can be sent anywhere instantaneously. And that needs to be investigated fully to see if that happened.

ABRAMS: And remember, we keep using the term disseminated, if they’ve been disseminated. If this information’s been disseminated, that could be a serious crime. But disseminated could mean, Joe, and correct me if I’m wrong, telling someone.

DIGENOVA: Absolutely.

ABRAMS: I mean, it doesn’t mean you have to send it out on a mass e-mail. There could be a crime here if someone goes home and tells their family, hey, guess what, I looked at Barack Obama’s files today. And he traveled to here and here and on his passport application, he said x, y, and z.

DIGENOVA: Absolutely, you’re technically correct. That would be a violation of the Privacy Act.

ABRAMS: David Shuster is back with us. David, we’ve been talking about the fact that these were low level employees, at least according to the State Department. What does that mean?

SHUSTER: Well, Dan, it means—well, first of all step a sec and we’ve heard the State Department say that they believed that this was imprudent curiosity. But it’s important to clarify now, the reason they believe that, is not because the inspector general reached that conclusion, it’s not because the person who was in charge of this particularly Consular Affairs Office made that conclusion.

They’re basing that only on the immediate supervisors in the particular office where the contractors worked. In other words, they have said on this call that they’d believe it was imprudent curiosity because that’s what they’ve learned from these contractors’ immediate bosses.

ABRAMS: Wait. The same people “who are to blame,” quote, unquote, for not bringing this up the food chain. And then, we’re hearing from Sean McCormack that they didn’t learn about it because these office managers didn’t tell them, and now what you’re saying that we have to rely on them for the information, that the only reason they went in there was imprudent curiosity?

SHUSTER: That’s exactly it. And that’s why this is perhaps an even bigger story now because, again, when people hear that the State Department has made the conclusion that this was innocent, no, the higher echelons of the State Department haven’t made that conclusion, middle-management has not made that conclusion, the inspector general has not made that conclusion.

That is based solely on the direct office supervisors where these contractors worked. And again, it’s embarrassing enough for the State Department that in fact, it was the immediate supervisors who are essentially keeping this and have now passed long to where that all (ph) this was innocent, but the fact of the matter is, Dan, that the inspector general who was supposed to, as your guest have pointed, who are supposed to be called in and investigate this stuff, they didn’t know about it until today.

Their investigations are just started. So, all of these questions about the intent and was information disseminated and what was driving these people to get this information, the only thing the State Department knows about all of these questions is based on the word of what the immediate office supervisors on this very small office have portrayed. That’s it.

ABRAMS: All right. Joining us now on the phone is former Secretary of State Lawrence Eagleburger. Thanks very much for taking the time. All right.

If you were the secretary of state right now, based on everything you have heard, would you be pretty furious?

LAWRENCE EAGLEBURGER, FMR. SECRETARY OF STATE: Oh, I’d be very furious. But I must suggest to the gentleman that you use a little less hysterical reporting here. The situation I was involved in was the Clinton passport was much worse than this one as far as I can tell from what I’ve heard.

And in that case, I learned about it in the first instance and I was acting secretary, I think, anyway, I heard about it and immediately turned it over to the inspector general. He has to running an inspection, sent it to the Justice Department and the attorney general appointed a special prosecutor namely, Mr. DiGenova.

I hope he’s still on. If he is, he can hopefully re-enforce my own recollections of all of this. But, in our case, it was much worse than what I think is going on.

ABRAMS: But Secretary Eagleburger, the problem is, that we’re talking about incidents that occurred on January 9th, February the 21st, and March the 14th. And the fact that it is just being learned now, today, by the inspector general -

EAGLEBURGER: Yes, I know. I know, I know. But let me finish because I hope that will put it in better context because in the case that I was involved in, there was no question that several officials in the department who were appointed there politically from the administration were involved in what they were looking for was any information on the Democratic president at that time.

And they looked into his passport application. So, I don’t know they found anything, but their intention was obviously to use it in the campaign. I hope we closed it off fast enough. I think we closed it off fast enough. That it never was used.

But in the meantime, I ended up firing an assistant secretary and at least one or two other officials once we heard about it. But it was directly political reasons. I don’t believe that’s the case in this case.

ABRAMS: All right. It may not be but faith in the system, I think it’s equally important to simply say that as of now we don’t know if there was political motivation. We don’t know that. And I think that’s an important point to make.

EAGLEBURGER: I think that it’s pretty clear there wasn’t. If it were, it wouldn’t been this, and (INAUDIBLE) for you now, for the State Department, they do have these methods of finding out who hit fire. We didn’t have that.

And I have to tell you, if we’re going to do this for the purpose of using for political purposes, they were stupid in the way they went about it.

ABRAMS: Well, people as you know, people do stupid things all the time in this country for stupid reasons. We’re going to take a break.

When we come back: Our continuing coverage of this breaking news in connection with three State Department contract employees, improperly accessing the passport records of Senator Barack Obama.

Our coverage continues in a moment.

(COMMERCIAL BREAK)

(NEWSBREAK)

DAN ABRAMS, HOST: We are continuing with our breaking news at this hour. The State Department confirming that there has been a security violation involving unauthorized access to the passport file of Sen. Barack Obama. State Department officials now saying that Obama’s records were accessed by three people on three different occasions earlier this year: January 9th, February 21st and March 14th. Two contract employees have been terminated; the third individual disciplined.

The State Department now saying in a press conference that they are holding, as we speak, that the inspector general of the State will conduct a review. The Obama campaign is speaking out. The spokesperson Bill Burton saying in a statement, “This is serious matter that merits a complete investigation. We demand to know who looked at Sen. Obama’s passport file, for what purpose and why it took so long for them to reveal the security breach.

Now, in the last couple of minutes from that call, we have gotten a little more information from the spokesperson for the State Department who are saying there’s no reason to believe that they disclosed this information to anyone else, but it’s a serious and valid question on the basis of the work this afternoon. There’s no reason to believe it, but they say they are not staking out a position that it could have happened but, I’m not saying it did either.

So the bottom line is they are being careful here not to take a firm position on whether this information was disseminated. Why is that important? Because if it was disseminated as a legal matter, that could be a felony, even if they disclosed it to friends or family. Of course, the greater concern would be that they had taken that information in an effort to politicize it.

Now, the State Department at this hour saying that there is nothing to indicate this was political motivation. They are saying that it was simply curiosity. But as David Shuster reported, that information at this time is coming from the very same managers who didn’t disclose the information to higher level State Department officials. So, as many questions as there are answers.

Let’s check in with our panel. We are joined by chief campaign correspondent, Tucker Carlson. Lawrence O’Donnell is with us as well. Andrea Mitchell is with us and David Shuster.

All right, Tucker. Let’s talk about this politically. This is obviously a political disaster for the Bush Administration, but they are not running for president.

TUCKER CARLSON, MSNBC SENIOR CAMPAIGN CORRESPONDENT: Yes. It’s a political windfall for Barack Obama. It’s infuriating. Every person can relate to this. As Joe DiGenova suggested and he would know, I don’t think it’s uncommon. It happens in government, it happens in the private sector. It happens to celebrities in hospitals.

As we know, everyone can relate to how infuriating it is to have your privacy violated. It comes at a perfect time, not to be crass, not to minimize it, but a perfect time politically for Barack Obama. We’re not talking about Rev. Wright and we won’t be for quite some time. This will leave the papers tomorrow, and you’re going to have a series of news conferences by Obama and his campaign, expressing, in my view, justified outrage for this. It absolutely helps Obama in every way. Again, I’m not trying to minimize it. I’d be furious if it were me, but the bottom line is it’s great for him.

ABRAMS: But you know, Tucker, this has long been a concern of critics of this administration, that there is no respect for privacy, so to speak. Yes, they will say -

ABRAMS: And when you hear a big news story like this coming out that a presidential candidate’s records were improperly accessed, it is going to feed into the sense in this country that individual’s privacy had not been respected enough, rightly or wrongly, linking it to other things.

CARLSON: There’s no question. You’re absolutely right. And I think there are real concerns about the Bush Administration’s prosecution of the “war on terror” and what it means to our privacy. That’s all real and I share the concerns. But that’s too easy.

I mean the truth is, as Joe DiGenova’s many years in federal service can tell you, this is the nature of bureaucracy. It’s the nature of it. It happens all the time. It doesn’t make it less wrong. It’s more wrong and more upsetting. This is what you get when the federal government has a lot of your personal information. It’s awful.

ABRAMS: Yes. Lawrence O’Donnell joins us. Yes, look. We understand that there are bureaucracies and in bureaucracies there are failures. It is hard to believe, is it not, that you have these incidents occurring in January, February and March. And whether the people who went in to access Obama’s information were doing it for political reasons or not, you have to believe that the reason that it didn’t make its way up the food chain, meaning if the middle-level managers were informed about it. They knew Barack Obama’s passport files had been accessed and no one was told, there was probably a political motivation or self-preservation motivation, at the least, not to disclose it.

LAWRENCE O’DONNELL, POLITICAL ANALYST: Well, there’s always self preservation motivation in the bureaucracy. And you know, you heard Larry Eagleburger, former secretary of state, lean immediately toward an innocent - which is to say, an explanation of stupidity, more than anything, conspiratorial in this.

And I have to tell you, my experience in government, working on the Democratic side of the government in the senate, points me to that direction initially and always on this kinds of stories.

Now, I think there’s a tremendous amount to be developed here. This could turn out to be anything. However, the possibility of it being mere stupidity by three people who didn’t know what they were doing and who hit those trip wires in the computer system is a very high likelihood of a bureaucracy of this size. That wouldn’t surprise me at all.

And the amount of privacy we have now on these records is dramatically higher than it used to be. When the IRS first got computerized, anybody sitting in the Andover office in Massachusetts could go look at, you know, Frank Sinatra’s tax return if they felt like it at anytime and no one would know it. We’ve imposed an awful lot of restrictions on this kind of information, in fact.

ABRAMS: Is David Shuster still with us? Because one of the questions that I want to know is - Look, you’ve got to question whether these contract employees, when they start there, and you may not know the answer to this question, whether they are informed about the basic rules, which is, I’m sure they know. You are not allowed to access the information of other individuals that isn’t something you’re dealing with, of course. But the question is, do they know that, for example, look - by the way, if you access high profile individuals, we’ve got a system in place where it’s automatically going to go to a higher level and people are going to know.

DAVID SHUSTER, NBC CORRESPONDENT: Well, Dan, they’re notified actually when they go into the file, as it has been described to me, there’s essentially a pop up that says the following information is private. You’ll be violating the privacy act if you use it for various purposes that are not allowed.

That doesn’t stop them, however, from going ahead and looking at the information, collecting information and going through the file. So they know, right when they click into it, that they’re not supposed to be there.

But, again, the key question in all of this is these office supervisors who made the decision that these people should be fired or who first collected the information, why didn’t they pass that information up the chain of command? And secondly, why should we believe these office supervisors when they say, “Oh, well, the information wasn’t disseminated”? I mean, they haven’t conducted a formal investigation. Nobody else knows.

ABRAMS: And Tucker, that’s what the investigation will assess. But, the timing - you know, January 9th, this is very shortly, I believe, after Obama wins Iowa. You know, again, I don’t want to necessarily attribute this to some sort of a conspiracy and political motivation. But, look, we’re talking about three individuals doing it this year in the time period Barack Obama has become, you know, a very serious leading Democratic candidate.

CARLSON: God, I’m amazed that we know this soon. I mean we can’t get documents from the Second World War because it’s still classified. I mean the nature of government is secrecy. It’s concealment from us. I mean that’s just what it is. I mean always and everywhere. Anybody who’s lived in Washington can tell you that. So, I’m sort of impressed, you know, we know three months later.

ABRAMS: The conference call from the State Department just concluded. We’re going to take a break. When we come back, we’re going to get a full report on exactly what the State Department is saying in a moment.

(COMMERCIAL BREAK)

ABRAMS: The State Department has just concluded a press briefing, conference call where they have tried to explain how three State Department contract employees improperly accessed Barack Obama’s passport information and why the State Department only found out about it this afternoon. We’re going to have a full report in a moment.

(COMMERCIAL BREAK)

ABRAMS: Continuing with our breaking news coverage of a security breach at the State Department, Sen. Barack Obama’s passport records had been improperly accessed by three State Department contract employees on three different occasions earlier this year - January 9th, February the 21st and just this past Friday, March the 14th. Two contract employees have been terminated, a third individual has been disciplined. Now, the State Department has just wrapped up a press briefing, a conference call, where they tried to answer a lot of questions about what they knew, when they knew it, how they found out and what they are going to do about it.

Andrea Mitchell, our chief foreign affairs correspondent, has been monitoring the call. All right. Andrea, I think the real question that people are going to be interested in is, why did it take them so long to find out.

ANDREA MITCHELL, CHIEF FOREIGN AFFAIRS CORRESPONDENT: Well, in fact, Sean McCormack, at the highest level, who works of course directly for the Secretary of State Condoleezza Rice, didn’t know about it until a reporter called him. So, they did not hear about this from the mid-level or lower level aspects of the consular office and passport office for whom these contract employees worked.

And his conclusion that it was just imprudent curiosity was passed on to him by the immediate supervisors of those contract employees. Two out of the three were fired; one was disciplined. So there has been no real investigation. The inspector general only got into it today.

As pointed out today by Joe DiGenova, one of your earlier guests, that inspector general will have no jurisdiction to compel any kind of interview these two fired employees. Only if they choose to comply and voluntarily give information will they be able to be interviewed.

No forwarding of this, referral of this to the Justice Department has been made because they are going to have this preliminary inspector general’s investigation. But at this stage, all the inspector general can really do is find out why the State Department employees didn’t tell their superiors.

Nothing was told to Barack Obama’s senate office until late this afternoon and that only at a mid-level. Patrick Kennedy, an ambassador in charge of management for the State Department will be going to Sen. Obama’s office tomorrow.

So there is outrage on the part of Sen. Obama’s office. This has been a clear violation of privacy. And yet to be determined is what might be significant on those three dates. Because as you can well determine, the first was only six days after the Iowa vote, which was the surprising and very large victory that propelled Barack Obama into frontrunner status. And then, you can see that the second date was February 21st after Super Tuesday. So you can see that there is correlation between Sen. Obama’s political success and these allegedly or presumably innocent inquiries. It doesn’t add up.

ABRAMS: Well, Andrea, as David Shuster was pointing out before, something pops up on the screen when individuals access information like this. So they can’t just claim, “I was just browsing and I figured out I’ll go through Obama’s records and I looked at it and I moved -“ It’s not like going to a Web site where you just check in and you move on.

MITCHELL: If there isn’t something more sinister involved, which would involve opposition research by the administration or by another campaign or by other parties or the Republican Party. But if there is something more sinister going on, this is such gross incompetence in terms of the management in reporting up of these obvious violations. There’s going to have to be a lot of people answering to it. Secretary Rice, by the way, was out of the country. She was in Moscow, got back today, did diplomatic work, was meeting with Thai officials.

ABRAMS: Did she know anything? I mean the “Washington Times” -

MITCHELL: Well, presumably by now, she does.

ABRAMS: Yes, the “Washington Times” had reported that yesterday she knew. That seems to be impossible, right?

MITCHELL: Well, she could have been informed in Moscow, but Sean McCormack is saying he only found about it today. So I suspect that that is the “Washington Time’s” dateline tomorrow, saying that she only learned about it today.

MITCHELL: I think that’s what made them post this in tomorrow’s paper.

ABRAMS: Fair enough. Good point. Eric Holder is still with us, campaign co-chair for Barack Obama. Again, we’re hearing about what they say in this press conference. We’re learning more about exactly who knew what when. But all we’re really learning is that there were low level individuals who failed to tell higher level individuals, or at least that’s what they’re saying, about what they saw and what they knew. The timing, as Andrea Mitchell points out, Mr. Holder, is significant, is it not?

ERIC HOLDER, CAMPAIGN CO-CHAIR FOR BARACK OBAMA (on the phone): Yes, there’s an awful lot here that needs to be looked at. Now, I don’t want to be an alarmist here, but if you look at the dates that Andrea was talking about and the events that are near the dates, that is of concern.

The fact that you have three people at three separate occasions looking at these documents, that is of concern. What was looked at, why was it looked at, who looked at it, was anybody told? And what about the decision not the pass the information up?

Is there a benign administrative explanation to that or is there something perhaps more sinister? Is there a cover up here? Again, I don’t want to be an alarmist, but the notion everybody seems to be going to (UNINTELLIGIBLE) is just the way bureaucracies work.

It’s a little too early to make that determination. There are too many questions out there that have not been answered.

ABRAMS: All right. We’re going to take a quick break. When we come back, our continuing breaking news coverage, in a moment.

(COMMERCIAL BREAK)

ABRAMS: Continuing with our breaking news tonight, the State Department has just wrapped up a conference call with the media trying to explain what they knew and when they knew it about Barack Obama’s passport files being improperly accessed by three individuals at the State Department what they are calling contract employees. Two have been fired. One has been disciplined, but on three different occasions, on January the 9th, on February the 21st, and on March the 14th.

Now, we’re just getting this information in about Secretary of State Rice because the question has been asked when did she learn this. Secretary Rice was informed about this today by her senior staff.

As Sean McCormack, the spokesperson for the State Department has said - he said he heard about it from a reporter and it appears he was the first senior staffer to hear and then report it to Rice. Her reaction, quote, “She had a lot of questions about the system. She wanted to make sure that we did a full investigation of the matter.

Laurent O’Donnell is with us. Lawrence, the idea that the only reason the highest level individuals in the State Department found out about Barack Obama’s passport information being accessed is because a reporter called them, is stunning.

O’DONNELL: It is an amazing unfolding of what we have so far. I think the March 14th date, Dan, is crucial. There’s something different about that case. That’s the one person who was not fired. It’s also the most recent one. Within a week we have, that March 14th incident is now public. It seems to me there was something about the March 14th that provoked more scrutiny than the earlier ones.

And then, there was a review backward from that to find these other incidents. I wouldn’t call it an investigation, because clearly, what we’ve established in this hour is nothing resembling a real investigation has occurred here.

ABRAMS: Andrea Mitchell is still with us. Andrea, do we know why - did they explain why on this conference call these two individuals were fired and one was disciplined?

MITCHELL: Not as far as I heard. Now, I should point out that there was a period of time when I was on the air with you and I didn’t hear every little thing. We had other people on the call. I’ll check that back. But I don’t think that they explained, because they themselves don’t seem to know very much about this. It seems to me that they just found out today at the higher levels. And they are now dialing back and trying to find out why they were not informed earlier.

And Lawrence is exactly right. It was the March 14th incident that obviously triggered something. And then they looked back and inquired as to whether this had happened before and found out that in fact had happened three times in all that we know about. And each time at fairly significant periods of political activity involving Barack Obama’s electoral votes.

ABRAMS: Andrea Mitchell, I have to let you go and I know you’re going to continue working the phones and working on the stories.

MITCHELL: You bet.

ABRAMS: Thank you so much. We appreciate it.

Eric Holder is still with us, co-chair for the Obama campaign, but also a long time federal prosecutor at the highest levels of government. Let me ask you, do you have any theory as to why one person was disciplined and two were fired?

HOLDER: I have no idea. But again, this just becomes more curious as we learn more facts. Why two people would be fired and one person only disciplined - again, there would have to be an investigation, a review of those kinds of employment decisions.

This is just for me, extremely disturbing and I’m very worried about what I just said, because I think there is a pattern here of some sort that may be connected to important dates in the campaign. Again, I don’t want to be an alarmist, but I would - (UNINTELLIGIBLE)that I think at this point be dismissed.

ABRAMS: And Lawrence O’Donnell, I’ve got to believe that in the context of this investigation, that is going to be one of the things they’re going to look at. Is there anything to the timing?

O’DONNELL: Absolutely. And, you know, we’ve made the point that the inspector general of the State Department does have jurisdiction over current employees and not people who have been fired. But the FBI can look at those people who have been fired starting tonight. I mean if the FBI is watching TV tonight, they know there are serious questions to talk to at least three people about, about possible federal crimes involving the files.

ABRAMS: Mr. Holder, do you agree?

HOLDER: There’s no question that people at the Justice Department through the command center are undoubtedly talking about this case right now. That I wouldn’t doubt.

ABRAMS: All right. This is a really sort of an amazing story. And there are potential legal ramifications to come. We shall see. Thanks to Lawrence O’Donnell and thank you, Eric Holder. Appreciate it. That’s it for this special edition of VERDICT. See you back here tomorrow.

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